A sea of red is sweeping through the cryptocurrency markets as Bitcoin continues to fall, and so doing, drags the altcoins down with it. What is the cause of the fall, and what is the outlook for cryptocurrency?
The main reason for the bearish continuation of the last few days could well be the speculation around capital gains tax hikes by the Biden administration. A Reuters article this morning reported on the proposed changes to the US tax code.
A near doubling of capital gains tax to 39.6% for those earning more than $1 million could be expected to have a dampening effect on this sector of the population investing in cryptocurrency.
The article does point towards this being a “temporary” decline though, as the widespread acceptance of cryptocurrency as a legitimate asset class has permeated through retail and institutional investors alike.
Another answer for the big price fall could be found in today’s $1.55 billion options expiry. When you take it that some investors were betting on an $80,000 bitcoin at the time of last month’s option expiry, it can be imagined that these investors will be hurting today.
However, maybe the main fundamental reason for the drop in the Bitcoin price is just that it simply went up too far and too fast. Some macro indicators were showing that the bull market was approaching a top. Some even that the top could be reached in a matter of weeks.
It makes absolute sense for the market to take a sizable correction. The previous bull market of 2017 recorded several corrections of around 40%, but these were each bought back up over a period of a few weeks.
The present correction, which has been happening over the last 10 days, has reached around 26% so far. Possibly another 14% to go? The correction last month reached 26.5% and the one before that, in January, fell as much as 31.5%.
Even though there appears to be a certain edge of panic in the market, it could be argued that Bitcoin has reached a point where it would take quite some stopping. Fundamentals are strong, network effect is strong, and at the end of the day, Bitcoin is outside of the traditional monetary system – long term, investors will decide where they want to park their wealth.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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